Want cheaper British car insurance? Mind how you shop

FILE PHOTO: Shopping trolleys are seen at a Tesco Express in southwest London September 22, 2014. REUTERS/Luke MacGregor/File Photo

The two biggest, Tesco (TSCO.L) and Sainsbury’s (SBRY.L), are offering discounts on financial products such as car insurance based on the predictability of people’s shopping, a step beyond the traditional route of price cuts in return for brand loyalty.

Banks and insurance companies around the world are exploring using customers’ data to better price financial products but few have links to supermarkets accounting for almost half of a country’s grocery market as Tesco and Sainsbury’s do.

Sainsbury’s Bank Chief Executive Peter Griffiths told Reuters the supermarket chain’s bank customers, of which there are 1.8 million, can get cheaper offers on products such as home and car insurance based on what else they buy and how they shop.

“Our strategy is to be the bank for the Sainsbury’s shopper, and we’re uniquely placed to use the power of data to offer better prices and products,” Griffiths said.

The supermarket chain said in one example it uses data from its Nectar card loyalty scheme to track shoppers whose regular, predictable pattern of visits to stores shows they plan ahead, characteristics associated with being a more cautious and safer driver.

Such people are offered cheaper car insurance.

The practice is entirely legal but some experts say it is too intrusive.

“People like me have been warning about this sort of thing for a very long time; we’d been talking about it as a theoretical for a while and waiting for real examples,” said Paul Bernal, an expert in internet privacy and companies’ use of personal data at the University of East Anglia.

Bernal said the trend rings a number of alarm bells. If the data provide an overly accurate picture of the customer’s lifestyle and behavior, that could breach their privacy, while if the data are, conversely, misleading, that could lead to the customer being unfairly treated, he said.

The retailer does not look at individual items purchased when pricing insurance policies, but rather a range of ‘anonymised’ purchases that can collectively show behavioral tendencies, Sally Marshak, a spokeswoman for Sainsbury’s, said.

Tesco, Britain’s largest retailer whose bank holds 8 million accounts, similarly uses data from its Clubcard loyalty scheme to offer discounts of up to 25 percent on car, home and pet insurance products.

“We use a range of data and criteria when assessing a customer’s eligibility for our products, however, as an extra help for customers, for some of our products we also use Clubcard data to offer them even better value,” Chris Sibbald, a spokesman for the company, said.

Campaigners like Bernal said the practice could leave some customers worse off based on their behavior, in ways they might not understand. For example, those who do not buy the right products or shop in the right way could miss out on discounts without realizing.

The retailers said they took that into account. “We’re not just looking at how people fill up cars at Tesco petrol stations and whether they do that at night, because they might be a taxi driver for example and there’s a reason for it, but together with other data you can build a picture,” Sibbald said.

Both supermarket groups said data are only used to offer discounts to some shoppers, never to increase prices.

“We’re trying to understand people’s shopping habits, and then see how can you use that to tailor the products and offer some of them a better price. The key thing is we don’t use it to up-price people,” Sibbald said.

POWER OF DATA

Tesco and Sainsbury’s are Britain’s two biggest retail chains, with a combined market share of the 192 billion pounds ($256.76 billion) a year grocery market of 45 percent, according to consumer research company Kantar Worldpanel.

They both have long-established loyalty schemes allowing customers to earn points and rewards for spending on groceries, giving them a rich database of shopping habits to help with marketing. Sainsbury’s, for example, offers shoppers who buy pet food discounts of up to 12.5 percent on pet insurance.

It is not unusual for companies to gather and use information in this way.

Life insurers are exploring analyzing social media to lower rates for people who are upbeat on Twitter, for example, while some motor insurers offer discounts to motorists who exhibit safe driving behavior after installing a tracking device.[nL8N1CR2O4]

But campaigners say the supermarket chains could end up with an unfair advantage due to the power of the data they hold.

The retailers’ banking units offer in-store shoppers a range of banking products such as credit cards, insurance and loans, taking advantage of the regular contact with potential customers at a time when Britain’s big banks are slashing branches.

“The thing people don’t understand about big data is that it is fertile and generates new data, so the more a company knows about your spending habits, the more valuable each new piece of information is in predicting your actions,” said Joe McNamee, executive director at European Digital Rights (EDRi), a Brussels-based association of civil rights organizations focused on digital rights and freedoms.

NEW RULES

One potential source of protection is a new set of laws, the European General Data Protection Regulation (GDPR) which is aimed at overhauling how companies handle customer data and comes into force in May 2018.

Britain’s government published a draft bill in September that would implement the bulk of GDPR.

While the rules are intended to harmonize data protection laws across Europe, they also give people better access to data held on them by companies and oblige companies to do more to get permission to obtain such data.

GDPR includes some restrictions on companies ‘profiling’ customers by using data about them to predict their preferences or actions, requiring customers to offer their consent.

Supermarket chains comply with the rules by including a privacy policy in the terms and conditions of loyalty card schemes that customers consent to when signing up.

UEA’s Bernal said most shoppers likely do not realize those implications.

“There is an issue around informed consent here, I don’t think people realize what they are signing up to, if they even read the terms and conditions at all,” he said.

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It remains to be seen whether the implementation of the new rules will do enough to stave off concerns about privacy and competition as big companies benefit exponentially with each new recorded purchase.

“I’ve not seen many examples like this,” said EDRi’s McNamee about the supermarkets’ use of data to price financial products. “The issue of big data is something that society hasn’t got to grips with yet, but there are big companies now that know more about you than you know about yourself.”